Icelandic central bank abandons krona peg to euro

REYKJAVIK, October 8, 2008 (AFP) – Iceland’s central bank said Wednesday it was abandoning efforts to shore up the krona, saying there was “insufficient support” for the exchange rate it had locked in at 131 kronur to the euro a day earlier.

“For the past two days, the central bank of Iceland has carried out foreign currency trading at a different change rate from that on the foreign exchange market,” the bank said in a statement.

“It is clear that there is insufficient support for this exchange rate; therefore, the bank will not make any further such efforts for the time being,” it added.

The Icelandic krona has lost half its value against the euro since the beginning of the year, according to figures provided by the central bank.

On Monday, Prime Minister Geir Haarde announced emergency laws to save the island’s giant financial sector and ward off national bankruptcy.

The measures allow the government to take control of all banks and financial institutions, take over assets, merge institutions and force institutions to declare bankruptcy. The government has since Tuesday nationalised two of the country’s three biggest banks, Glitnir and Landsbanki.